Informed Traders: Linking Legal Insider Trading and Share Repurchases

Abstract

Logic suggests that a link might exist between insider trades and share repurchases because of their potential to signal mispricing when market prices deviate from fair value; both events emanate from essentially the same set of decision makers. Using the overall repurchase sample, adding insider-trading information is generally not helpful. For “value” buyback companies, however, where perceived mispricing may be a more important factor, insider trading provides a strong complement to the repurchase signal.

Keywords: Equity Investments, Equity Market Valuation and Return Analysis, Portfolio Management, Equity Portfolio Management Strategies